The global stock surge tied to Donald Trump’s victory in the U.S. has a better chance of enduring if the president-elect can coax nations such as Germany, Japan and China to embrace reforms, said Mohamed El-Erian, Allianz SE’s chief economic adviser.
“In order for this Trump rally to be sustained, it’s not just about implementing policies at home,” El-Erian said Tuesday in an interview on Bloomberg Television. “It’s not just that he has a pretty clear path domestically, because the Republicans control both houses of Congress. Also, he’s going to need to convince allies and China to move on their re-balancing.”
The S&P 500 Index has jumped about 6 percent since Election Day on optimism that Trump’s plans for stimulus projects and lower taxes will stoke growth. The dollar also climbed along with bond yields, trends that could hurt exports and threaten Trump’s vow to revive employment in America’s manufacturing industry.
“It goes too far when it does two things,” El-Erian, who is also a Bloomberg View columnist, said. “One, when it tightens financial conditions too much. And second, when it fuels protectionist rhetoric in the U.S.” that could lead to more restrictions on trade.
El-Erian called Trump’s pledge to increase infrastructure spending “low-hanging fruit,” noting that President Barack Obama had a similar goal but struggled to win support in a Republican-led Congress. The prospects for consensus might not be as strong in other major economies, however.